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I finally have my 89 automatic 325i on the road. All four gears work but at 120km/hr my tach reads 4200rpm???? The engine doesn't sound stressed so I am thinking that there might be an issue with the tach. What should I expect for RPM in fourth at highway speed?

Rpm is a simple gauge to wire, comes from the coil. Unless someone has messed around with the gauge cluster or any adjustments on the throttle body including the kickdown cable... I'd suspect the transmission isn't shifting into overdrive.

On my old auto the first thing to die was the overdrive. Over the course of a year it became progressively worse: slipping in first, then it started bouncing back and forth between 2nd and 3rd. Finally at the end of a long trip back to northern Quebec all forward gears died and I drove it backwards 30km until the reverse blew. (I was up north in the middle of nowhere - long story).

Saturday was the first day on the road with this car. It is a southern convertible. The speedo works, the odometer doesn't..... The tach reads over 1grand at idle even though it sounds lower..... the car has issues which I plan to slowly resolve. I don't really care about the tach, yet looking at 4200rpm at 110km/hr feels rather uncomfortable.

Auto trans has a 4th gear of .73, so 4200rpm becomes 5915.5 rpm at the driveshaft.

Varying diffs are possible, but even with the highest reduction diff(4.10), the diff output shafts are turning at 1442.8 rpm.
Multiply that by the stock tire circumference (1915mm) and you get 2763mm/m. Multiply by 60 mins and you get 165.8km/h